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Friday, January 25, 2013

Why Alberta's current fiscal situation is actually something worse than just a bust

Following yesterday's episode of RedTV I am seeing a lot of people on Twitter saying stuff like 'Here we are again, the boom and bust cycle!", etc etc. Our current situation may resemble the boom and bust cycles of the past but I can assure you that our situation is actually a lot worse and something completely new.

The problem with the view that Alberta is simply in a "bust" is incorrect because relatively oil is not low at all, it's quite high. Anything over $80 is extremely high on a long term time line. Previous busts (such as the one in 2008/2009) returned the oil price to an actual low number ($34 in 2008 I believe).

We are not going to see anymore oil-oriented economic booms in Alberta, none. The current price of oil simply does not allow enough room for a proper acceleration into "boom". By the time the "boom" starts picking up oil price has already reached $100 or more, and the affordability of gas and oil takes over and the "bust" occurs directly afterwards.

Alberta oil booms were premised on exponentially rising oil prices, prices that never fell and for a few years this worked out as we expected, but now that the price of oil is so high and even a low price of oil is relatively extremely expensive this exponential growth in the price of oil is over. It's going to be short-term volatility, all the time from now on in oil prices meaning that so long as we pursue our current economic model we will be in a perpetual "bust".

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.